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Oldest mysteries in macroeconomics

Some of the oldest mysteries in macroeconomics include:

The effectiveness of monetary policy: One mystery is how monetary policy, specifically changes in interest rates, affects the overall economy. Economists debate the extent to which interest rate adjustments by central banks impact inflation, employment, and economic growth .
The relationship between inflation and unemployment: The Phillips curve, which suggests a tradeoff between inflation and unemployment, has been a subject of debate and scrutiny. The precise nature of this relationship and the appropriate policies to address both inflation and unemployment continue to be researched .
The causes and control of inflation: Understanding the factors driving inflation and finding effective methods to control it remain areas of ongoing research . Variables like changes in the money supply, supply chain disruptions, and market structure can impact inflation .
The effectiveness of fiscal stimulus: The debate continues around the efficacy of fiscal stimulus measures in stimulating economic growth . The impact of government spending and tax policies on the overall economy is a key area of study .
The role of prices in the macroeconomy: The concept of the "invisible hand" and price adjustments in achieving market equilibrium is central to macroeconomics. However, the speed and effectiveness of price adjustments to restore equilibrium remains a topic of investigation .

These are just a few examples of the long-standing and ongoing mysteries in macroeconomics. Macroeconomists continue to research and analyze these topics to deepen our understanding of the economy and develop effective policies.

To all the econ papers I've loved before

Planet Money

(someone): I was born in China during the one-child era. My sister was born here in the U.S. after we moved here. This paper showed me that economists can take on really important questions. Questions about gender, about inequality, about justice, about me and my family. That's why I love economics and why I love reading economics papers. A great economics paper is like magic. It can completely change how you see the world and how we all fit into it. Hello and welcome to Planet Money. I'm Jeff Guo. And I'm Amanda Aranchik. Today on the show, a celebration of the economics paper. A great economics paper, according to me, does two things. One, it answers a big question, a question that matters. And two, it finds a really smart, clever way to answer that question.

(someone): So we are going to go deep with three economists about the great papers that they love, papers that blew their minds. We're going to talk about the economics of church donations, the consequences of serving in the Vietnam War, and butter prices in Sweden.

(someone): That's a big question, too.

(someone): America loves its eureka moments.

(someone): Take one canonical invention, Thomas Edison, light bulb, 1879.

(someone): But the world did not change the day that Edison's light bulb went on.

(someone): What mattered for the rest of the world is not the invention of the light bulb, but the implementation, that slightly less heroic story of how an invention goes from one to one billion.

The quest to save macroeconomics from itself

Planet Money

(someone): But you have to recognize that this is the invisible hand that we think of as making markets work.

(someone): What does that mean?

(someone): It means that when you think about supply and demand, and how does it happen that we have supply equating demand, the way it works is by the prices adjusting to make the supply increase and the demand fall. And if the prices aren't doing that perfectly, maybe if they're just off by a little bit, maybe this could lead to a very large difference from the ideal efficient outcome that we could imagine coming from a market economy.

(someone): Yeah, and it's almost maybe another way to think about that is, like, if you think that the invisible hand is super nimble and the economy adjusts really quickly, prices adjust really quickly, then anything that happens, whether it's a shock, a hailstorm, the government printing more money, the government, you know, spending more money, like, none of that really matters that much.

(someone): That's exactly right. Things are buffered by the price mechanism to a much greater extent.

(someone): The invisible hand is going to fix everything for us.

(someone): That's right. But once you get into a situation where the prices are not adjusting in such a nimble way, then there's potentially much more room for it to be important for the Fed, for example, to have the right policies. Because if it has the wrong policies, it's not all just going to be fixed by the invisible hand. And I think sometimes people forget how surprising it is that monetary policy does anything at all. The simple analogy that you can give is if you double the amount of money in the economy, but all the prices instantly double, then absolutely nothing happens.

SUMMER SCHOOL 2: GDP & What Counts

Planet Money

(someone): Are they getting worse? Are they getting better? And pretty soon, you can't turn on the radio without hearing these new numbers and what they're measuring, this new thing called the economy. Here's Zachary Karabell.

(someone): By 1937, Roosevelt starts talking about the economy, and he starts talking about national income going up.

(someone): National income had amounted in the year 1929 to $81 billion.

(someone): You'd never hear Abraham Lincoln or Teddy Roosevelt or George Washington talking in this way. One of the things that's remarkable to me is how quickly we went from a world where none of these terms and none of this conversation was part of our national consciousness to it being at the center of our national consciousness.

(someone): This number that Kuznets is adding up becomes part of a kind of intellectual revolution. Over in England, the Brits are also adding up this number, and the British economist John Maynard Keynes starts talking about the economy as something that the government can control.

(someone): You get a lot of people who really start believing that there's this thing called the economy that's a mechanical system that obeys laws just like physics. and that if you can describe the system and the variables correctly, it's very mechanistic, like input in, output out. And so part of the reason for measuring is the belief that all this fuzziness that had attended human history around waves of bursts of growth and then collapse and money going up and money going down, that we could capture it and control it the same way scientists were capturing and controlling physical reality.

(someone): This new idea, this idea that economists and the government could really control this new thing called the economy, was about to be tested in a huge way. In 1941, the U.S.

To all the econ papers I've loved before

Planet Money

(someone): This is Planet Money from NPR. I want to tell you about the moment that I fell in love with economics. It was around 2008, 2009. I was in college, didn't know what I was going to major in, but it was the middle of the financial crisis. So I thought, I'll take some econ classes. In one of these classes, the professor started talking about something kind of unexpected. She said that economists have been trying to understand why, in some parts of the world, men outnumber women. They called this the missing women problem. The most famous example is China with its one child policy, but the missing women problem shows up in India, Pakistan, and Taiwan. And our professor had us read this really interesting paper that had just come out. It was by this young economist, Nancy Chan, who had this theory. She thought that the missing women problem was somehow connected to women's incomes. She realized that in China, picking tea leaves is mostly women's work. So to test her theory, she came up with this ingenious idea. She compared regions that grew tea with regions that didn't grow tea. And she found that in tea growing regions, when the price of tea goes up, all of a sudden girls were more likely to survive childhood, probably because their mothers were earning more money and had more say in what family resources were going to their daughters. This paper blew my mind. All of a sudden, I realized that economics is about way more than just supply and demand and the stock market. I was born in China during the one-child era. My sister was born here in the U.S.

A locked door, a secret meeting and the birth of the Fed (Classic)

Planet Money

(someone): They think we have finally designed a central bank specifically for the United States of America. Well, it gets shot down in Congress, gets tweaked, gets debated, takes years. But the basic idea they came up with there in that swanky resort, it holds up. And so 100 years ago this month, December 1913, President Woodrow Wilson signs the Federal Reserve Act and the USA finally has a central bank. Actually, it has 12 central banks spread all around the country. Take that, Europe.

(someone): So here we are 100 years later, and to this day, there is still a debate over what Aldrich and the bankers did at Jekyll Island. Clearly, creating the Fed did not solve the problem with financial panics. There was the Great Depression, to name a big one. And everybody, even Ben Bernanke himself, agrees that the Fed really screwed up, actually made the Great Depression worse.

(someone): Yeah, the Fed continued to evolve. After the Depression, the Fed's power got more concentrated in Washington. It became basically one central bank. And it wasn't just the lender of last resort anymore. It became the creator of money from thin air.

(someone): And by 2008, the Federal Reserve had more power than J.P. Morgan ever dreamed of. When the financial crisis hit, the Fed used that power to step in, stop the panic, and probably prevent another Great Depression. But at the same time, a lot of people have said the Fed's own policies contributed to the 2008 crisis in the first place.

Bond Voyage

Planet Money

(someone): But economists have spent the last decade trying to figure this out. Why are interest rates so low even when deficits are so high? And there are a few reasons they've come up with. Here are two big important ones.

(someone): Number one basically comes down to supply and demand. You can think of interest rates as the price of borrowing money, borrowing dollars. And the higher the supply, the more money, the more dollars people want to lend, the lower the price, the lower the interest rate. And the thing that's happened over the past decade is the supply of dollars to lend has gone up. So the price to borrow those dollars, the interest rate has gone down. The supply has gone up for a few reasons, but maybe most importantly, the Federal Reserve, America's central bank, has created trillions and trillions of new dollars.

(someone): Reason number two for low interest rates, this one people are talking about a lot right now, this is the thing that people worry about, it's inflation.

(someone): Inflation. It's inflation. Inflation and interest rates are very closely linked.

(someone): Very interlinked.

(someone): And here's why. If you lend somebody money today and there's a bunch of inflation between now and the time you get paid back, that is bad for you as the lender because the money you get paid back won't buy as much stuff as the money you loaned out. because of the inflation.

(someone): So as a result, when lenders, those bond vigilantes, expect inflation to be high, they demand higher interest rates to make up for it. And an essential fact of the last decade has been that inflation has stayed really low year after year.

Two Indicators: Inside the Fed, then and now

Planet Money

(someone): He believed it eroded business confidence, leading to reduced investment and high unemployment.

(someone): And yet the Fed under Burns eased up on rates in the early part of the 1970s when U.S. inflation was already elevated around 5 percent. And there are some different theories about why Burns did this. One theory is political pressure from Nixon. And that brings us back to Burns grimacing at the president's joke about Fed independence.

(someone): The press laughs. Everyone in the room laughs because Nixon's touting the official line of Fed independence, but it's going to apply political pressure. And Burns knows the guy. And he understands that's going to be a challenge. And it is.

(someone): Nixon wanted low interest rates to stimulate the economy and boost his re-election prospects for 1972. And Burns actually writes in his diary about getting pressure from the president on this. But Chris doesn't buy the idea that Burns caved to Nixon. And a former Fed governor from that time who actually disagreed with Burns on rates, he later said that it wasn't about political pressure. It was about avoiding a recession.

(someone): And this tradeoff between corralling inflation and risking a recession is also the debate that's taking place today. As we've talked about on the show, keeping rates elevated can help bring down inflation because it raises the cost of borrowing across the economy and cools off demand. But sustained high rates can also cause pain in the form of unemployment.

(someone): Chris says not only did Arthur Burns worry about causing a recession, but he also wanted other parts of government to pitch in on the inflation problem.

Trade Show (UPDATE)

Planet Money

(someone): OK, that's possibly apocryphal, that story. But what is true is Adam Smith grew up and basically invented economics as we know it. And a key part of that was thinking about trade in this way that was really revolutionary and that, frankly, is still central to the way economists think.

(someone): So at the time, people measured the wealth of a country, the wealth of a nation, if you will, by how much gold the country had.

(someone): And the pile of gold is what makes you rich. It's gold.

(someone): That's right.

(someone): Who doesn't want gold? And everything a country did was to get more gold. They would explore. They would go to war. They would take over continents. And they would trade. International trade was a gold-making machine. You send cloth or grain to France, France sends you gold.

(someone): But the key to the way people thought about trade at the time was you wanted to keep that gold in your country. And the way you do that is you do not buy stuff from other countries, or at least you want to buy less from them than they buy from you. You want to run a trade surplus. That's how you get a big pile of gold in your country.

(someone): So countries put up high tariffs. taxes on imports, and they put quotas to discourage people from buying stuff from other countries. They basically said, keep the gold here, buy everything in this country.

(someone): Adam Smith looked at these policies and just said, that just doesn't make sense.

Big Little Ideas

Planet Money

(someone): OK. So the money illusion is a phrase coined, you're welcome, by an economist named Irving Fisher. He's largely forgotten now. He was a huge deal in the first few decades of the 20th century. And in addition to being a big time economist, he ran this company that sold some kind of index card system, like a little proto-Rolodex that Fisher invented. And what happens is this. You know, he realizes that you have sometimes inflation, right, where prices go up. In this era when he's running this company, you actually also had deflation sometimes. We don't really have that anymore. But you used to have moments when prices of everything will go down for, you know, a period of time. And he realizes, like, my employees' pay should rise and fall with inflation and deflation, right? They should be able to buy the same amount of stuff next year as they can this year. I mean, if they're going to get a raise, that's a separate thing. But as a general matter, if prices go up, their pay should go up. And if prices go down, their pay should go down because they're getting the same amount of stuff, the same amount of purchasing power, right?

(someone): Right. There are cost of living adjustments, which presumably are like tied to inflation. Your money buys less. Therefore, you need to make more as an employee. It's not the most foreign concept.

(someone): Exactly.

Two Indicators: Inside the Fed, then and now

Planet Money

(someone): But sustained high rates can also cause pain in the form of unemployment.

(someone): Chris says not only did Arthur Burns worry about causing a recession, but he also wanted other parts of government to pitch in on the inflation problem. He believed that interest rates were a powerful tool, but not the only tool. He wanted government to use things like tax policy and maybe even wage and price controls to also help fight inflation.

(someone): He was trying to moderate the interest rate hikes that were necessary by getting the rest of government to do their job. In other words, in the absence of other government action, he'd have to raise rates to such a high level, creating a recession, throwing millions out of work, and the guy didn't want to do it.

(someone): In 1971, Nixon did put wage and price controls into place. This was a controversial move because these types of controls usually only bring down inflation in a temporary way, and they create other problems like shortages and layers of bureaucracy.

(someone): Over the next few years, the Fed raised rates to get a handle on inflation. Then, it cut rates when it felt unemployment was getting too high. Inflation went up, and so did people's expectations of future inflation. By 1974, inflation was in double digits, and the economy was in a deep recession.

(someone): Chris says, in hindsight, even as an Arthur Burns defender, he can point to certain periods and say, rate should have been higher. But he also thinks Burns was dealing with a couple of big economic forces that shaped his approach to interest rates.

(someone): One of those is that the American financial system was in a fragile state, and Burns didn't want to further destabilize it.

The quest to save macroeconomics from itself

Planet Money

(someone): that monetary policy does anything at all. The simple analogy that you can give is if you double the amount of money in the economy, but all the prices instantly double, then absolutely nothing happens. It's like saying, if we measure your height in centimeters or inches, you're still going to be the same height. No effect. What monetary policy is controlling is literally just the units And so how do you get to a place where the units matter? And that's where you have to come back to price adjustment. Because in my little example of suppose you double the money supply and all prices double, then nothing happens. Well, this is an example where we think about completely flexible prices.

(someone): Perfectly nimble.

(someone): Perfectly nimble, invisible hand. Exactly. So studying prices in the context of macroeconomics is a lot about thinking about where we are relative to this perfectly nimble, invisible hand.

(someone): So all these debates about, like, does the Fed matter? Does the Fed setting interest rates, does that even matter? Does the government spending money, does that even matter? All of that, in a way, is a debate about, do these prices adjust fast enough on their own or not?

(someone): Exactly. And that's where I think, again, we in macroeconomics, and me personally, we're kind of triangulate from different forms of evidence.

(someone): I want to talk about your work, really looking to see how this invisible hand works, because you went and got your own data, right?

Two inflation Indicators: Corporate greed and mortgage rates

Planet Money

(someone): Did the profit maximizing behavior of firms suddenly take a jump up in 2021? I don't have any evidence that that's the case. I haven't seen anyone argue that or model that. It doesn't seem very logical to me.

(someone): Fiona pours cold water over the idea that these major leaps in inflation that we've seen all across the economy are largely caused by uncompetitive markets.

(someone): When we think about the underlying causes of inflation, the big one is going to be the money supply, along with really unusual conditions such as a shortage of semiconductors that raises the price of cars.

(someone): In other words, those really low interest rates, the government spending, and also the supply chain issues that have been gumming up the economy for the last couple of years, those are the core underlying causes. Fiona says that monopolistic companies being greedy is not a large driver of inflation throughout the economy right now. And yet, Fiona is very clear that she does not agree with the opposite conclusion, that uncompetitive markets had nothing to do with big price rises recently.

(someone): If somebody were to say the price increase in meat because of the pandemic has nothing to do with the market structure of meat, I actually think that's very unlikely to be true. I think the market structure of meat is for sure affecting how shocks are passed through.

(someone): Take industries that are more concentrated, that have fewer players in them, like the meat industry. They might jack up prices higher than competitive industries during a pandemic.

(someone): In a concentrated market, one firm could announce it's going to raise prices because of inflation, and its rivals might look at that and say, oh, this is a good excuse to raise prices.

The quest to save macroeconomics from itself

Planet Money

(someone): That is after the break. There's this very old idea in economics. You've all heard of it. It's called the invisible hand. And the idea is, you know, if something puts the markets out of whack, like if all of a sudden the wheat harvest fails or if someone invents a cheaper way to make clothing, the economy will eventually find its way back to equilibrium. The invisible hand will work its magic. And the way that works is through prices. The price of wheat will go up. The price of clothing will go down. And presto, supply will equal demand again. And in theory, the invisible hand means that economies are mostly self-correcting. They should just snap back to equilibrium. But in practice, that doesn't always happen right away. In fact, the question of how quickly or slowly this invisible hand works its magic is at the center of some of the biggest debates in macroeconomics. And for Emi Nakamura, that is the question she has spent a lot of her career trying to answer. So you've done a lot of work trying to understand how companies set prices. Why is that such a big deal?

(someone): Yeah, that's a good question. I think many people's reaction to that is, why are we talking about the price of Cheerios? I really got into economics to think about something more important. But you have to recognize that this is the invisible hand that we think of as making markets work.

(someone): What does that mean?

The quest to save macroeconomics from itself

Planet Money

(someone): Okay, so first I think the humble answer is to emphasize the fact that the macroeconomic environment is changing pretty rapidly. So the current monetary environment really has only been around since the 1950s. So the world was on the gold standard for a lot of human history. There were stones, there were other monetary systems in history, but those are not the same as the system we have today. And so one, I think, important answer to your question is that unlike physics, macroeconomics faces the challenge of a continually changing environment.

(someone): Like the modern economic world was born like just a couple decades ago.

(someone): That's right. And so how many recessions do we have to analyze in the current environment?

(someone): I guess when I used to like, I don't know, roll my eyes at macro people, I guess I didn't realize how little data there was to work with.

(someone): Yeah, absolutely. So I would say traditionally macro focused on looking at say GDP or inflation in every year, maybe in every quarter of the year. But still, if you're going to say that the modern macroeconomic era only started in you know, 1980 or 1950, you realize that if you're going to try to think about questions like recessions or the effect of fiscal stimulus or of monetary tightening or something like this, often we only have a few major episodes to think about. So thankfully, events like the Great Depression or the financial crisis, they don't happen often. But that does mean that we are in a situation of trying to extrapolate from relatively small numbers of events.

(someone): Yeah, it's kind of like what you're describing.

The debate over what's causing inflation

Planet Money

(someone): It was this round the country consultation with union members, with small business owners, community college leaders. And now they had to hear essentially how America was feeling about the economy and whether the Fed should change how it thought about it.

(someone): I think the Fed has been slow to recognize that the dynamics between inflation and the tight labor market are not what they were in the 70s.

(someone): This is Mark Levinson, chief economist at Service Employees International Union, and he's speaking at one of these Fed Listens meetings in New York. And what Mark was saying was that in the past, low unemployment often meant high inflation, you know, as a hot labor market gained steam that might raise wages and put inflationary pressure on the rest of the economy. But in the years before the pandemic, unemployment was actually getting really low and inflation was also really low. And so he was saying maybe there isn't such a tradeoff. Maybe this could actually be a win-win, low inflation and low unemployment rates, which could also have benefits for groups of workers that have been historically marginalized.

(someone): the benefits of tight labor markets, real wage gains that noticeably go to lower and middle class workers. that go to African-American workers.

(someone): And that year where the Fed Listens Tour had started in 2019, the Fed started lowering interest rates, making it easier for companies to borrow and hire more people. And unemployment fell so much that low-wage workers, black workers, and Latino workers were getting pay rises. And for a moment, income inequality was falling, and inflation wasn't rising very much. It was another lesson for Powell, which he also took into the pandemic. And here he is at a press conference in September 2021.

The quest to save macroeconomics from itself

Planet Money

(someone): or inflation, how is that constructed? Where does it actually come from?

(someone): What are the underlying facts?

(someone): Exactly, exactly. Because if we're going to spend all our time working on these kinds of statistics, then we want to know where they come from and know that they're right.

(someone): Make sure your telescope lenses are clean.

(someone): Exactly, exactly. And then once you get started cleaning those telescope lenses, then you see a lot of things.

(someone): But seeing things clearly, that's kind of been the big problem with macroeconomics. Macroeconomics, it's all about these big questions like why do some economies grow so much faster than others? How long is the next recession going to last? How do we stop inflation without wrecking the rest of the economy? And even some macroeconomists are saying we're still kind of in the dark ages when it comes to all that stuff. And so in the next part of our interview, I asked Emmy, why has progress been so slow? You know, every couple of years you have this like famous macroeconomist who comes out and says, we don't know anything. We actually have no idea how inflation works. We know nothing. And I'm like, you guys have been working on this for like maybe centuries. Like, like we surely we have to know something. Why, why are we, why are people saying that we don't know anything?

Two Indicators: Inside the Fed, then and now

Planet Money

(someone): But he also thinks Burns was dealing with a couple of big economic forces that shaped his approach to interest rates.

(someone): One of those is that the American financial system was in a fragile state, and Burns didn't want to further destabilize it. During his tenure, two important companies, including a major bank, ended up collapsing.

(someone): There's a generalized fear that if the cost of money increases too fast or too high, it's going to cause the financial system to shake, if not even potentially come apart.

(someone): The other big force was what was actually causing inflation. In the 1970s, inflation was a global issue. There were big shocks coming from the supply side, like the Arab oil embargo of 1973. It wasn't clear that hiking rates, which would primarily affect demand, was the right approach for tackling this kind of inflation.

(someone): It was a mystifying and wildly frustrating period because it was not clear what to do. In other words, when the sources of inflation, particularly in 74, were largely driven by supply-side shocks, raising rates would certainly throw the economy into the deep freeze. It may help with inflation to some extent, but If it's not actually going to bring it back to a level that is reasonable, then what do you do?

(someone): Today's economy has also seen supply side pressures drive inflation. And every time new data comes in on inflation and unemployment, the Fed has to think, do we stop raising rates now before we cause unnecessary economic pain? Or do we keep going to make sure this inflation is really vanquished?

(someone): So I guess to bring things around to where we started, you know, everybody has their one sentence that history sort of boils them down to, right?

The quest to save macroeconomics from itself

Planet Money

(someone): So I had to come clean. When I first heard about you, you had won a bunch of really big prizes, and everyone was talking about all of these papers that you were coming out with. And people described you as an empirical macroeconomist. And that was the first time I'd ever heard that phrase. And I was like, that truly does sound like an oxymoron.

(someone): I'm very excited about that phrase. I'm seeing it more and more used by others as well. I think it's a field that, to me, clearly should exist. I think it's an exaggeration to say that there wasn't anybody in this field before, but I think it's growing. I think that makes a lot of sense given the world that we live in, where there's an increasing amount of data and the fact that there's no question that we still need to make progress on these macroeconomic questions.

(someone): And credit where credit's due, because of empirical macroeconomists like Emi, that progress, it is actually happening, just slowly, one dusty microfilm cartridge at a time. This show was produced by Dave Blanchard with help from Sam Yellowhorse-Kessler. Additional recording help from Jazz Williams. It was engineered by Josephine Neonai and fact-checked by Sierra Juarez. Keith Romer edited the show. Alex Goldmark is our executive producer. I'm Jeff Guo. This is NPR. Thanks for listening.

Two Indicators: back to school

Planet Money

(someone): Jane Eyrig is a senior advisor at the U.S. Central Bank, the Federal Reserve.

(someone): Many students only take one economics class in their lifetime. And so whether it's in high school or whether it's in college, Let's teach them what's going on.

(someone): In particular, there's a problem with the way macroeconomics is taught. And macroeconomics, that's the study of things like unemployment, inflation, interest rates. So Jane's Workplace, the Federal Reserve, it sets interest rates to manage the economy, to try and keep jobs and inflation at just the right level. But to a lot of us, our understanding of the Fed is all mistaken.

(someone): One of the biggest things that the Federal Reserve does is set interest rates. The Fed wants to keep inflation under control while also keeping people in jobs. Interest rates are maybe the most important number for the economy. But starting in 2008, the way that the Fed went about raising or lowering interest rates completely changed.

(someone): some big changes that are happening at the Fed that aren't really incorporated into the classroom yet.

(someone): And several years later, it became clear the Fed was committed to this new way of tweaking interest rates. And so Jane tried to get the word out.

(someone): I worked with two co-authors and wrote a paper for economists on the new tools, because we knew, even in the economics profession, it just was not well understood, the Fed's new framework.

(someone): And in her paper, Jane described the old way the Fed used to work, this sort of old-fashioned lesson that you might see in a lot of econ textbooks.

The debate over what's causing inflation

Planet Money

(someone): These episodes debate what is causing all this inflation.

(someone): First up, the $5 trillion question. Did all that money the government spent during the pandemic cause the pickle we're in? We'll talk to someone who makes the case that maybe, yeah, it's a fiery hot take and by no means settled, but we want to hear this out.

(someone): Meanwhile, other economists are blaming the Federal Reserve for not acting sooner. So in the second part of the show, we will look at some potential reasons why, like the ghosts from Jerome Powell's past. These are ghosts that have haunted him throughout the pandemic and which may have contributed to the inflation mess that we're in right now. That's all coming up.

(someone): John Cochran is a senior fellow at the free market oriented think tank, the Hoover Institution, and John has also been running a blog for over 10 years called The Grumpy Economist.

(someone): I'm not really a grumpy person, but I was reading the op-eds one morning and Paul Krugman had written some particularly outrageous thing and I spilled my coffee and my children dubbed me the grumpy economist, so I thought that would stick.

(someone): And to explain where John Cochran's views fits among economists, he asked us to picture a rowdy scene.

(someone): Mainstream economics is like a bar fight. So there's a lot of difference, but a broad consensus. Inflation ultimately comes from monetary and fiscal policies.

(someone): Monetary policies mean stuff that the central bank, the Federal Reserve, does, primarily by changing interest rates. And fiscal policies means the amount that the government borrows and spends.

Two mysterious bond market indicators

Planet Money

(someone): This is Planet Money from NPR. The economy is in a confusing place. There are some pretty troubling signs including the most recent collapse of several banks and also inflation remaining stubbornly high. But then there are things like consumer spending which continues to be strong. In uncertain economic times like these, we go back to our bread and butter, economic indicators. And some of the best indicators can be found in one of the biggest financial marketplaces in the world, with countless bets being placed minute by minute by traders scrutinizing every economic data point and every utterance by policymakers. That is, the market for US government bonds. And right now, the signals from the bond market are flashing in a strange, mysterious way. Hello and welcome to Planet Money. I'm Darian Woods. Today on the show, we're going to bring you two episodes of our daily economics podcast, The Indicator, both looking at what these strange signals from the bond market are telling us. We've got a story on a big recession indicator, the yield curve, and a story on how normally safe and secure treasury bonds can turn ugly. After the break, Adrian Ma and I will head off on our explorations of the bond market, starting with the yield curve. Of all the economic indicators, there is one that has predicted every recession since 1969 with no false positives.

(someone): That is a remarkable track record of economic doom predicting. We're talking about the yield curve. The yield curve. That's right. We talk about it a lot on this podcast and the yield curve is flashing red right now. It's going alert, alert.